Indian refining companies are snapping up rare crude grades as the coronavirus outbreak curtails China’s demand for processing, executives and traders said, with prices for some grades falling by as much as 15%.
Chinese refiners have slashed output by at least 1.5 million barrels a day in February, or over 10 per cent, after the virus outbreak hit domestic fuel demand, leading to swelling stocks.
“Opportunity for Indian markets is more in the context of what is happening in China and in recent times we received crudes which are appearing to be attractive as compared to their value earlier,” said R Ramachandran, head of refineries at Bharat Petroleum Corp.
Refiners in India, the world’s third-biggest oil importer, rarely get the opportunity to buy suitable grades from areas like the Mediterranean and Latin America due to higher freight rates.
However, shipping rates have plunged by nearly half since the virus outbreak, and after the US partially lifted sanctions on part of Chinese shipping firm COSCO.
BPCL will receive a million barrels each of Brazil’s Sapinhoa and Mediterranean CPC blend in April, Ramachandran told Reuters.
It is also scouting for a million barrels each of Angola’s Palanca, a grade BPCL processed years ago, and Nigerian Okoro “as pricing appears attractive” for April, he said.
“This is an opportunity for Indian refiners to buy new and rarely purchased grades that are available at cheaper rates,” said Sri Paravaikkarasu, director for Asia oil at consultancy FGE.
Asia’s spot premiums for Middle East, Russian, West African and Brazilian crude have all dropped this month with grades favoured by Chinese buyers, such as ESPO, Lula and Angolan, hurt the most.
“For the Brazilian and CPC blend we have seen crude cost lower by 10-15% compared to what we used to see,” Ramachandran said.
Ample crude supplies allow other buyers to shop around and buy crude cargoes at cheap prices, although some Chinese refiners are also still chasing cheap supplies.
“For March-loading, April-arrival West African crude cargoes, premiums have dropped across-the-board,” said a West African crude trader.
“Different crude grades are reacting differently… In general, most grades were down more than $1. Rare grades are very cheap,” the trade source said.
National oil companies in China buy a lot of Middle Eastern heavy crudes and medium grades, while independents process medium-to-heavy sweet grades from Latin America and Africa.
“In spot tenders we are seeing a reduction in premiums. We are seeing offers for sale of new grades. Opportunities have increased,” said M K Surana, chairman of Hindustan Petroleum Corp (HPCL).
“We are seeing offers for rare grades from Africa like Angolan Nemba and US crude like WTI Midland at very competitive rates.”
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